EU launches investigation into Temu over illegal product sales

The European Union (EU) has launched an official investigation into Temu, the e-commerce platform run by Chinese-owned PDD Holdings Inc., over allegations that it has failed to prevent the sale of illegal products.

The probe could result in significant fines for the platform, as European regulators tighten their oversight of online marketplaces.

EU targets Temu for regulatory compliance

According to insiders, the European Commission's investigation will assess whether Temu has violated the EU’s Digital Services Act (DSA), which requires platforms with over 45 million users to take stringent measures against illegal content and counterfeit goods.

Non-compliance could lead to fines amounting to 6% of the company’s global revenue.

The investigation is part of a broader EU effort to hold online platforms accountable for disinformation and illicit activities.

While the timing of the probe's announcement may shift due to impending leadership changes within the EU, sources suggest it could be revealed soon. Temu has not yet issued a statement in response to the investigation.

EU demands answers from Temu

The investigation follows an initial inquiry on October 11, when the European Commission requested detailed information from Temu regarding its handling of counterfeit and illegal products.

Regulators asked the platform to provide internal documents and data on its efforts to curb unauthorized traders.

Temu’s response, however, failed to satisfy EU officials, prompting the escalation to a formal probe.

Temu will have an opportunity to propose corrective measures to address the commission’s concerns and potentially avoid penalties.

The outcome of the investigation could significantly impact Temu's operations in Europe, where it faces growing scrutiny alongside major platforms like Meta, Alibaba’s AliExpress, TikTok, and Elon Musk’s X Corp.

Challenges ahead for Temu

Temu has experienced rapid growth since its launch by PDD Holdings, expanding its footprint globally. A high-profile Super Bowl ad campaign in 2023 contributed to making it one of the most downloaded apps in the US.

The platform’s flash sales, low prices, and game-like features have attracted budget-conscious consumers in multiple markets.

However, the e-commerce giant now faces challenges amid rising competition from TikTok, Alibaba, and Amazon, each vying for the attention of thrifty shoppers.

PDD Holdings recently warned of potential difficulties ahead, highlighting the increasing competition in the e-commerce sector.

The company reported revenue of 97.1 billion yuan ($13.6 billion) for the June quarter, missing the forecast of 100 billion yuan. Net income stood at 32 billion yuan, slightly above market expectations of 27.5 billion yuan.

Meanwhile, PDD’s American depositary receipts fell by 2.6% to $121.95 in New York after the announcement of the investigation.

EU crackdown on major platforms

The EU’s investigation into Temu is part of a larger crackdown on digital platforms under the DSA framework.

Regulators have initiated similar probes into major companies, including Meta Platforms Inc., Alibaba’s AliExpress, TikTok, and X Corp. The DSA aims to create a safer online environment by requiring platforms to remove illegal content and prevent the sale of unauthorized products.

Temu’s response to the investigation will likely play a key role in determining the severity of any fines or restrictions.

The platform’s ability to implement effective countermeasures will be crucial as it navigates the regulatory landscape in Europe.